Apple’s 3Q24 in Three Charts
Hello everyone.
While recording the podcast episode for yesterday’s update, it occurred to me that one part of our discussion could have benefited from a bit more explanation. While such explanation was added to the podcast, which does routinely happen when episodes are recorded, to ensure everyone received the explanation, the following passage was from yesterday’s update:
“Back in 2019, [Warren] Buffett trimmed a very small part of Berkshire’s Apple stake. When asked why, Buffett didn’t actually provide an answer other than to say Berkshire’s overall stake in Apple continues to move higher due to Apple's buyback program.”
Since Apple is retiring the shares that it repurchases, the overall number of shares outstanding has been declining. This means that each remaining outstanding share is entitled to a larger share of Apple’s future cash flow (and business). If Berkshire didn’t buy or sell any additional AAPL shares, their stake in Apple would gradually rise thanks to Apple’s buyback program.
If we assume that Buffett cuts Berkshire's AAPL stake so that it’s slightly larger than the next largest equity holding (say $30B fair value at 140M shares), that would equate to 0.9% of Apple. Over time, assuming Apple continues to buy back shares and Berkshire doesn’t sell any more shares, that Apple ownership percentage will rise. The buyback is a major reason why Buffett finds AAPL shares attractive.
We will continue our Apple 3Q24 earnings review. Let's jump in.
Apple’s 3Q24 in Three Charts
Last Friday, we went over how Apple’s 3Q24 earnings compared to my expectations. Results came in close to my estimates. Nearly every line item beat (HW gross margin was the only thing that missed).
We also discussed the largest takeaway from earnings: iPhone fundamentals continue to gradually improve and are becoming less of a drag on Apple's overall ecosystem growth.
Turning our attention to secondary themes from earnings, there were three:
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Apple's 3Q23 in Three Charts
Hello everyone. Welcome to Monday and a new week. We will continue our Apple 3Q23 review.
Given how the past few quarters for Apple have contained similar themes, we are going to try something different for this quarter's review. We will focus on three charts that sum up Apple's 3Q23. As we will see, there is quite a bit of consistency on display with each chart. (We will cover all of the granular takeaways from Apple's 3Q23 earnings call in tomorrow’s update.)
Before jumping into today’s update, one clarification regarding Friday’s update. When talking about Apple’s hardware margins, the commentary was garbled. That part of the update should have read:
Products (HW) gross margin: 35.4% (vs. my 35.7%). My iPhone gross margin estimate was a tad bit too optimistic. On a year-over-year basis, HW gross margins were up by 85 basis points.
Apple's 3Q23 in Three Charts
Gross Profit Resiliency
3Q23 results: $36B gross profit (up 1.5% from 3Q22)
There has been much attention placed on Apple’s gross margins (and rightly so). Gross margin is cost of goods subtracted from revenue. Based on management commentary, the company will come close to reporting a 11-year quarterly high for gross margin percentage 1Q24. Management provided a 44.0% to 45.0% range. Gross margin percentages don’t tell the full story though. Instead, we need to look at gross profit in absolute terms to obtain a cleaner assessment of Apple’s business.
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